Could the intense price war among D2C platform providers spill over into the advised space? Henry Brennan finds out what it could mean for long term sustainability
The spate of direct-to-consumer (D2C) providers unveiling increasingly competitive platform charges has been causing a stir in the first few weeks of 2014.
In terms of this headline charge, news that Hargreaves Lansdown would be charging 45bps for sub-£250,000 clients prompted some competitors to undercut it by as much as 20bps.
However, this focus on pricing models is indicative of a potentially damaging trend for the industry in the long run, if such a trend is even sustainable.
GBST chief executive Robert DeDominicis said execution-only platform costs could end up being taken as the benchmark for platform pricing, but an overreliance on this factor could prove damaging.
He said: "In order for platforms to provide a full and proper service, they need a revenue stream that supports reinvestment. We are not talking about sustainability or whether customer funds are being held in an organisation that will be around in 25 years."
It would seem a fixation with pricing could spark another race to the bottom among advised platforms, but commentators are adamant they will not be pressured by headline D2C platform charges.
Ascentric executive chairman Hugo Thorman said that while pricing in the D2C space has fallen faster than anticipated it will not affect his firm's advised proposition.
He said: "It is fair to say it ended up at a lower level more quickly than I expected. That does challenge the adviser route and will, without a doubt, tempt some clients to try direct. It is important for advisers to establish firmly what their advantage is over a non-advised proportion.
"If advised platforms were to try and mirror the D2C space, it would imply they are not adding value. They should not be so concerned about those clients who are only arguing the price."
Ascentric recently retired plans to sell its own execution-only platform, Fundsdirect, and is currently piloting a white-label D2C platform service for IFAs.
Nucleus chief executive David Ferguson said that although there is some shared market between the two distribution channels, activity in one is unlikely to unsettle activity in the other.
He said: "I think the D2C market is still going through a price-led competition. Someone at some point will realise that cheap and cheerful is not necessarily the best. It will then drift back to the one that is any good and bring the price war to a halt."
Aviva head of platform proposition Phil Ralli said the growth of execution-only propositions for providers who run both distribution channels would likely prove positive overall.
He said: "One of the most obvious advantages is that if platforms are able to generate scale business through assets under management in the D2C area, then it gives them the opportunities of realising the economies of scale across their advised platforms as well.
"All platforms will be looking very carefully at the pricing moves which have gone on over the past few months, but advisers are good at describing why it is worth a client paying more for the comparative cost of advice."
Value of advice
Aviva only operates an advised platform at present, but says it is considering a move into D2C.
Old Mutual vice chairman Peter Mann said there are no immediate plans to review Skandia's pricing structure.
He said: "We want to get away from this constituent price and focus on total cost of ownership.
"We do not intend to reprice our platform charge as a result of the D2C space repricing theirs. For the first time, at a client level, they are able to compare the costs of the two because they are using both services. When you make these comparisons, the advice element is good value for money."
Skandia does not currently operate a D2C proposition, but Mann said the focus will be on building a B2B2C service.
Any contagion from the execution-only space looks set to be minimal, even perhaps positive. The main challenge in the advised space will be to establish value as a priority consideration over cost.
Total adviser platform assets: £265.2bn (Q4 13)Source: The Platforum
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